lunes, diciembre 15, 2014

Just in time for Christmas,
there’s a surprise present for consumers: plummeting oil prices. They
have fallen forty per cent since July—gasoline now costs well below
three dollars a gallon—saving Americans hundreds of millions of dollars a
day. This has been a mini-stimulus for the economy, and one that was
almost completely unexpected. Before the summer, prices had been high
for years. Despite a lot of geopolitical turmoil and macroeconomic
anxiety, the oil market had been remarkably stable, and it seemed
possible that, as one study put it, “hundred-dollar oil is here to
stay.” But in a matter of months all that changed.

So
what happened? At the most basic level, it’s a simple supply-and-demand
story. Europe’s continued troubles and a slowdown in the Chinese
economy muted the demand for oil. Meanwhile, the U.S. shale-oil boom and
a rebound of drilling in Libya boosted supply. “Libya’s ramping up of
production caught people genuinely off guard,” Steven Kopits, the
managing director of Princeton Energy Advisors, told me. “That’s the
kind of thing that’s hard to predict unless you have really good
intelligence assets on the ground.” The result was that the market was
producing many more barrels of oil a day than were consumed. As oil was
dumped on the market, prices inevitably fell.

In
the oil market, though, nothing is simple. The real story of the past
few months isn’t that oil prices have fallen; it’s that they’ve fallen
so far so fast, and that they may still have a long way to go before
hitting bottom. That suggests that the stability of the past few years
has yielded to a new era of volatility, in which small changes in supply
and demand will lead to big price swings.

Such
volatility is exactly what the history of oil prices would lead us to
expect. Commodities are more volatile than other assets—the price of
copper fluctuates a lot more than that of a television set—and oil has
historically been more volatile than most other commodities; a 2007
study found that in the U.S. it was more volatile than ninety-five per
cent of other products. The biggest reason for this volatility is that
short-term supply and demand for oil are what economists call
“price-inelastic,” which means that they don’t respond much when the
price of oil changes. People don’t immediately start driving less when
gasoline prices spike—they just pay more for gasoline. On the supply
side, drilling projects take a long time to start up or to shut down, so
higher prices don’t immediately translate into more supply, or lower
prices into less. This means that the way prices typically return to
normal—through increasing supply or diminishing demand—doesn’t really
happen in the oil market. So a two- or three-per-cent change in supply,
which is about how much the shale boom and the Libyan rebound added to
global daily production, can spark a huge move in price.

In
recent years, hedge funds and commodity-index funds have put hundreds
of billions into the oil market, and studies suggest that this flood of
investment may have increased the market’s volatility. By its nature,
oil trading is beset by uncertainty. It’s not just the precarious
geopolitics of where most of the world’s oil reserves are. There’s also
the fact that predicting future demand requires forecasting the
performance of the entire world economy.

You might think that the existence of OPEC would guarantee stability. But OPEC is weaker than it once was, thanks to the emergence of big non-OPEC oil producers, like the U.S. Besides, enforcing stability at a time of falling prices is easier said than done. OPEC’s
members face a classic collective-action problem. They’d be better off
ultimately if they all agreed to curb production—Saudi Arabia, in
particular, would have to cut back—but individually they have a greater
incentive to continue pumping. And the Saudis know from history that
cutbacks don’t always work. In the early nineteen-eighties, they slashed
output in an attempt to prop up energy prices. “They cut production and
cut production and cut production, and all it did, more or less, was
wreck their economy for the next twenty years,” Kopits said. “This time
around, they’re drawing a line in the sand and saying We’re going to
keep pumping, and everyone else is going to have to adjust around us.”

The shale-oil boom has added to uncertainty, too. OPEC
has no control over what U.S. producers do. And even though shale-oil
producers often face higher production costs than traditional drillers
do (which should make them quick to cut production when prices fall),
many also have debt payments to make and fixed costs to meet if they
don’t want to go out of business. So they’re likely to keep pumping,
since that keeps revenue coming in until (they hope) the price recovers.
But continuing to pump, of course, makes it harder for prices to
stabilize.

It
would be a mistake for oil producers to expect a return to the high,
stable prices of recent years. By the same token, American consumers
shouldn’t get too used to cheap gas, since in the long run low oil
prices erode the conditions that brought them about. Producers are
already starting to adjust: ConocoPhillips just announced that it’s
cutting its drilling budget. And, because cheap oil gives everyone an
economic boost, eventually it leads to higher demand. We’re awash in oil
right now. Soon enough, we may be wondering where it all went.

Goldman Sachs has just led a $15 million funding round for Kensho,
a financial data service that should have analysts quaking in their
boots. The company is seeking to replace equity analysts with software.

If Kensho's claims are accurate, it should send a shiver down the
spine of every financial analyst and researcher. Previously, the huge
and growing amount of data available hasn't harmed analysts — the
numbers are often useless without some interpretation. But if that data
can be interpreted automatically, it's bad news for researchers and
analysts. They might not be needed anymore if a machine can do the
interpreting faster and better.

This process isn't just something that's hitting analysts.
White-collar jobs could be replaced by algorithms and robots all over
the place. Computers and robotic automation have replaced a huge
proportion of jobs in manufacturing and agriculture in the past hundred
years, but the trend isn't likely to spare service-sector desk-based
workers.

Platforms like Narrative Science have already started to do this with journalism,
with firms' financial statements quickly turned into news articles by
the software. The stories are often indistinguishable from regular
human-written news. A combination of firms like Kensho and Narrative
Science mean you could soon be reading an article written by a robot
journalist, based on research done by a robot analyst.

Two
of the biggest Internet companies in the world are going public in the
United States, but most Americans have never heard of Chinese
powerhouses Weibo Corp. and Alibaba.

Despite
both companies' lack of recognition in the U.S., they are poised to
make massive stock-market debuts in New York — and make a play to become
household names in America, too.

Sina Weibo

Weibo kicked off the buzz on Friday, when the company filed paperwork to raise $500 million in an initial public offering.

The
company owns Sina Weibo, China's largest microblogging site. Sina Weibo
is similar to Twitter, with short posts from brands, celebrities and
regular folks.

The site has
managed to grow rapidly — the service had more than 129 million active
users as of December, up 77 percent in just two years — despite a
tightly controlled media environment in China. Hundreds of Weibo users
have reportedly been arrested in China over posts that angered the
government.

Sina Weibo does have a
small English-language section featuring celebrity users like David
Beckham, Tom Cruise and British Prime Minister David Cameron.

E-commerce
behemoth Alibaba Group is more difficult to describe. It has been
described as China's Amazon, eBay and PayPal wrapped into one. But
Alibaba isn't a perfect mirror of any of those U.S. counterparts, and
its scope is much broader.

Alibaba
followed Sina Weibo's news by revealing its own plans on Sunday: a New
York debut that could reportedly raise $15 billion for the company.
While Alibaba hasn't filed its official paperwork yet, its stock-market
debut is slated to be the buzziest since that of Facebook.

The company said in its announcement on
Sunday that the U.S. IPO "will make us a more global company and
enhance the company’s transparency, as well as allow the company to
continue to pursue our long-term vision and ideals."

Alibaba
employs about 20,000 people in more than 70 offices in China,
Singapore, India and the United States. The company's nine major
businesses span all parts of the e-commerce process, and they're split
between consumer- and business-focused missions.

On
the consumer side, Alibaba's crown jewel is Taobao Marketplace: an
eBay-like online shopping site with a whopping 760 million product
listings as of March 2013, the most recent data available. According to
Internet site ranking company Alexa, it's the 8th most popular site in
the world and the No. 3 site in China.

The
more upscale Tmall sells brand-name goods from from 70,000 global
companies including Apple, Nike, Gap and Adidas. ETao is a search engine
exclusively for shopping, which lets users hunt for products, coupons,
hotels and more. Alibaba also runs a Groupon competitor called
Juhuasuan.But
Alibaba was founded for businesses, and that legacy continues. The
namesake Alibaba.com is a trading site that connects small businesses
with two million suppliers. Both 1688.com and AliExpress focus on the
wholesale marketplace. The PayPal-like Alipay is the biggest third-party
online payment platform in China, and Aliyun.com sells cloud computing
and data services to other companies.

Alibaba's
CEO is the charismatic Jack Ma, who created the company in 1999 with 17
co-founders working out of an apartment in Hangzhou, China. Unlike many
of the dot-coms that went bust during that time, Alibaba became
profitable just three years later. That attracted big investors like
Yahoo, which currently owns about a quarter of Alibaba, and Japan's
Softbank, which owns about 37 percent.

Like
Sina Weibo, however, Alibaba also faces competition. The large Chinese
investment firm Tencent announced this month that it will buy a 15
percent in JD.com, the country's No. 2 e-commerce company.

One of the fathers of modern finance and a winner of this year's Nobel prize for economics said the bloated deficits of the United States and European nations may lead to a worldwide recession.

Eugene Fama, whoe "shared the economics prize for research into market prices and asset bubbles" with Robert Shiller and Lars Peter Hansen, told Reuters on Saturday that the markets may not find the debts of European nations and the United States to be credible.

"There may come a point where the financial markets say none of their debt is credible anymore and they can't finance themselves," he said. "If there is another recession, it is going to be worldwide."

Fama, who is a professor at the University of Chicago, also played down the United States's stronger labor market data from last month.

"I am not reassured at all. The jobs recovery has been awful. The only reason the unemployment rate is seven percent, which is high by historical standards in the U.S., is that people gave up looking for jobs," he said. "I just don't think we have come out of (the recession) very well."

jueves, octubre 31, 2013

"I want London to stand alongside Dubai and Kuala Lumpur as one of the great capitals of Islamic finance anywhere in the world." — David Cameron, Prime Minister, Great Britain.
But critics say that British ambitions to attract investments from Muslim countries, companies and individuals are spurring the gradual establishment of a parallel financial system based on Islamic Sharia law. The Treasury also said some sukuk Islamic bond issues may require the government to restrict its dealings with Israeli-owned companies in order to attract Muslim money.

The London Stock Exchange will be launching a new Islamic bond index in an effort to establish the City of London as one of the world's leading centers of Islamic finance.

Britain also plans to become the first non-Muslim country to issue sovereign Islamic bonds, known as sukuk, beginning as early as 2014.

The plans are all part of the British government's strategy to acquire as big a slice as possible of the fast-growing global market of Islamic finance, which operates according to Islamic Sharia law and is growing 50% faster than the conventional banking sector.

Although it is still a fraction of the global investment market -- Sharia-compliant assets are estimated to make up only around 1% of the world's financial assets -- Islamic finance is expected to be worth £1.3 trillion (€1.5 trillion; $2 trillion) by 2014, a 150% increase from its value in 2006, according to the World Islamic Banking Competitiveness Report 2012-2013, published in May 2013 by the consultancy Ernst & Young.

But critics say that Britain's ambitions to attract investments from Muslim countries, companies and individuals are spurring the gradual establishment of a parallel global financial system based on Islamic Sharia law.

British Prime Minister David Cameron announced the plans during a keynote speech at the ninth World Islamic Economic Forum, which was held in London from October 29-31, the first time the event has ever been held outside the Muslim world.

"Already London is the biggest center for Islamic finance outside the Islamic world," Cameron told the audience of more than 1,800 international political and business leaders from over 115 countries.

"And today our ambition is to go further still. Because I don't just want London to be a great capital of Islamic finance in the Western world, I want London to stand alongside Dubai and Kuala Lumpur as one of the great capitals of Islamic finance anywhere in the world."

Equity markets ran red around the world Thursday, on concern the Federal Reserve’s commitment to keeping its foot on the gas may be wavering and a lackluster economic data out of China and Europe.

The selloff began in the U.S. Wednesday, when Ben Bernanke said the Fed could start to taper asset purchases this summer and FOMC minutes from the last meeting showed more discussion of such action, perhaps as early as June.

Meanwhile, Chinese factory activity slowed for the first time in months, as the flash HSBC purchasing managers index dipped to 49.6 (a reading below 50 indicates contraction). In Europe meanwhile, flash PMI came in ahead of expectations at 47.8, but still signaled slowing activity.

While stocks fell in both China and Europe, the day’s worst performance came from Japan where the Nikkei plunged nearly 7%. Long Japanese stocks and short the yen has been a popular trade this year with the Bank of Japan emptying both barrels on monetary stimulus efforts, but the trade had a sharp reversal Thursday with the Nikkei’s drop and a snapback for the nation’s currency in the forex market. (See “Is Japan The New Apple?”)

In New York, stocks were cutting morning losses as the major averages recouped a chunk of the early declines. The major indexes were down less than 1% about an hour before midday, with the S&P 500 off 8 points at 1,648, the Dow Jones industiral average just 31 points at 15,276 and the Nasdaq 10 points to 3,454.

Concern about the Fed hitting the brakes on its stimulus actions has the 10-year Treasury yield back above 2% and weighed heavily on the rate-sensitive utility sector, where fat dividend yields look less attractive at lower spreads against the perceived safety of government debt. The Utilities Sector SPDR ETF slumped 1.7% Wednesday and names like Sempora Energy and Pepco Holdings were down more than 3% apiece to be among the S&P’s worst performers.

Stocks closed out the week with a bang, with the Dow briefly topping 15,000 for the first time, as Wall Street cheered a better-than-expected April employment report.

All three major indexes -- the Dow Jones industrials, the broader S&P 500 and the tech-heavy Nasdaq -- finished sharply higher for the week, with the Dow and S&P advancing to all-time closing highs.

"It's going to be the first time we put two weeks together in a row to the upside in about eight weeks…so that's the good news," said Art Hogan, managing director at Lazard Capital Markets. "The bad news is that we've run out of catalysts next week—earnings season is virtually over and the macro is very quiet."

The Dow Jones Industrial Average shot up about 143 points, propelled by Caterpillar and Alcoa. Earlier, the index crossed above 15,000 for the first time. It took the blue-chip index nearly six years to cross 15,000 after it first topped 14,000.

The S&P 500 easily surpassed 1,600 and the Nasdaq also rallied. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, slumped below 13.

Most key S&P sectors ended in positive territory, led by materials and energy. Telecoms slipped.

U.S. employers added 165,000 jobs in April, according to the Labor Department, while the unemployment rate fell to a four-year low of 7.5 percent. Economists in a Reuters poll expected a reading of 145,000 and unemployment to hold steady at 7.6 percent.

"The [jobs] number beat consensus and also importantly, the revision from last month tells the story of a not-as-sluggish labor market," said Troy Logan, managing director and senior economist at Warren Financial Service. "However, the unemployment rate is still high. So that tells us that the Fed is going to continue with its accommodative policy – that means we have Fed support, which is good for asset prices and a jobs market which is not getting worse."

On Wednesday, the Fed said it was prepared to "increase or reduce" the monthly pace of its $85 billion in bond purchases, after its Open Markets Committee (FOMC) meeting.

More than 80 percent of S&P 500 companies have posted quarterly results so far, with 68 percent topping earnings expectations and 21 percent missing forecasts, according to Reuters. If all remaining companies post numbers in line with estimates, earnings will be up 5.2 percent on last year.

But on average, sales have come in 1 percent below estimates, with only 46 percent of companies beating their revenue projections.

Following a hack attack, the Associated Press' verified Twitter account posted "an erroneous tweet" claiming that two explosions occurred in the White House and that President Barack Obama is injured. Moments later, the @AP Twitter account — with nearly 2 million followers — was suspended.
Immediately following the false tweet, the Dow Industrial Average lost about 140 points. These losses were immediately recovered. (See chart below.)

Google

Following the false @AP tweet, the Dow Industrial Average lost about 140 points. These losses were immediately recovered.

"That's a bogus tweet," an AP spokesperson initially told NBC News, a statement that was repeated by the company's corporate communications account. Though the false tweet disappeared, the false message continued to exist on the service in over four thousand retweets.
In a briefing that occurred after the erroneous tweet appeared, White House spokesman Jay Carney told reporters that "the president is fine, I was just with him." Julie Pace, AP's chief White House correspondent, reiterated during the briefing that "anything that was just sent out about any incident at the White House is actually false."
AP media relations director Paul Colford is quoted, in a blog post, as saying that the company had also suspended other AP Twitter feeds, "out of a sense of caution." He added, "We are working with Twitter to sort this out."
A wire statement issued later explained that the mid-day tweet "came after hackers made repeated attempts to steal the passwords of AP journalists." The New York Times revealed a tweet by a group called the Syrian Electronic Army claiming credit for the hack. The group's Twitter account is currently suspended.
Social media accounts associated with CBS News programs "60 Minutes" and "48 Hours" were compromised on Saturday. The same group, known for its pro-Assad politics, took credit for that attack too, as well as earlier attacks on the Twitter accounts of NPR and the BBC. The group is not to be confused with the hacking collective known as Anonymous — in fact, they have previously clashed online.
Passwords are weak link
Because password theft is the culprit behind social-media account takeovers, security experts say that better protection is needed. Responsibility for security is shared between the user and the service.
"The challenge (with corporate-owned Twitter accounts) is, we share the password," Chester Wisniewski, senior security advisor at Sophos, told NBC News. "Once you get enough people with the password, bad things are going to happen," he adds. "There's no good way of isolating or limiting access these high-profile accounts."
Wisniewski said it is up to Twitter to strengthen security by using two-factor authentication, a log-in technique used by Google, Apple, Facebook and others that requires the pairing of a password with a code delivered to a user's cellphone.
"In my opinion, this is overdue for Twitter, especially for verified accounts," he said, regarding how incidents like this could be prevented. "Humans are the weakest things when it comes to a phish [attack]."
NBC News has reached out to Twitter for additional comment.
— with additional reporting by NBC News' Stacey Klein, Helen Popkin and Patrick Rizzo

Four years after pushing investors into one of the deepest financial holes in a century, the U.S. stock market is now powering ahead in one of the strongest bull markets in a half century.

So it’s no surprise many investors are wondering how much longer it can last.

Fueled by growing signs that the U.S. economy is finally repairing lingering damage from the Great Recession, stock prices have been making new highs for weeks.
On Thursday, the S&P 500 index closed at its highest level in history, after rising for 11 of the past 13 weeks. The Dow Jones industrial average, which tracks just 30 stocks, broke into record territory March 5 and has been setting new highs since. (Neither index, however, has reached a new high after adjusting for inflation.)

In the last 10 months, stocks have risen nearly 25 percent, as measured by the S&P 500 index. Since August, 2010, the broader Wilshire 5000 index has powered ahead by 50 percent – a rally that’s created more than $6 trillion in wealth for U.S. households, corporations, pension funds and other institutional investors.

To some investors still shell-shocked from the 2008 financial collapse, it’s beginning to feel like October 2007 – just before the bottom fell out. Or 2000, when the dot-com bubble popped.

Take a deep breath. Those worries are simply misplaced, according to none other than former Federal Reserve Chairman Alan Greenspan, who coined the now-famous phrase for the telltale sign that a stock market party is getting out of hand.

"'Irrational exuberance' is the last term I'd use to characterize what’s going on at the moment,” the retired central banker recently told CNBC. “It's got a ways to go as far as I can see.”

To be sure, bull markets inevitably include sharp pullbacks, as some investors take profits or others have second thoughts about the rally's staying power.
But for now, the millions of investors who are pouring billions of dollars into the stock market every week seem to agree with The Maestro. Here’s why:

So what got this party started?Much like most market recoveries, the initial stage represented a snap back from one of the worst financial collapses since the Great Depression. Markets often act like a rubber band: If they get pulled too far in one direction, they tend to want to snap back to more “normal” levels. The 2008 crash left stocks at deeply-depressed, bargain prices. But until the recovery was solidly in place, buyers had to be willing to bear the risk that the down cycle hadn't run its course.

In the last six months, the stock market rally has entered a new phase, driven largely by good news about the economy. The housing market has now bounced back sharply from the deepest recession in generations. Rising home prices have helped rebuild much of the multi-trillion dollar loss in household wealth that was obliterated by the collapse of 2008.

To be sure, it’s not all good news. The economy remains sluggish. Europe is struggling through a recession. The unemployment rate – through steadily declining – remains painfully high. Not all companies are taking part in the market rally.

Sorry: What makes stock prices go up and down again?In the short term, supply and demand – just like a pair of Red Sox tickets on Stubhub. When there are more buyers than sellers, the price goes up. And vice versa.

NBCNews

SOURCE: Standard and Poors

Over the longer run, demand for a given company’s stock is driven largely by its prospects for becoming more profitable. As any Red Sox season ticket holder knows, there’s a lot more demand for unused Fenway seats when the team is on a roll than when they’re losing.

As profits go up, so do stock prices. But to make money, you’ve got to own the stock before the company announces higher earnings.

That’s why investors are buying now – based on the belief that the recent improvement in the economy will continue this year and next.

“I don't think it's all that surprising that the stock market would rise, given that there has been increased optimism about the economy,” the current Fed chairman, Ben Bernanke, told reporters earlier this month. “Profit increases have been substantial. And the relationship between stock prices and earnings is not particularly unusual at this point.”

But didn'tBernanke create this bubble by pumping trillions of dollars cash into the system?The Fed’s unprecedented, ongoing easy-money policy has certainty had a lot to do with the surge in stock prices.

Ultra-low interest rates have helped two ways. Cheap credit helps boost economic growth; the housing recovery would have taken a lot longer without record low mortgage rates. Ultra-low rates on safer investments like bonds also force investors looking for higher returns by turning to riskier investments like stocks.

It’s a premature to call this rally a bubble. The late-90s Internet craze “went bubble” when investors began paying Gold Rush prices for companies with no profits whatsoever. They were betting – based on wildly optimistic forecasts about future growth – that profits would eventually kick in. But in the end, it turned out that launching the fourth-largest online shopping site targeting left-handed golfers wasn’t a winning business model after all.

Ironically, some of the trends underlying those 1990s forecasts - of a millennial boom in entirely new online products and services – are now helping boost corporate profits today. In many cases the predictions were right. They were just 20 years too early.

OK.Butif the economy is still weak, where are all these profits coming from?One big source is workers’ wages – which have been falling, after adjusting for inflation. As business improves, more of that cash is heading straight to the corporate bottom line.

It’s not hard to see why. With unemployment still at 7.7 percent, few workers have leverage to demand a raise. Many companies have also been able to meet increased demand by asking their existing workers to put in more hours and check their email on weekends. Globalization continues to offer opportunities to outsource work to low-wage, overseas markets.

As the job market improves, and companies continue adding more full-time workers, that added profit may begin to slow. Higher health care costs could also take a bite. But for now, much of the revenue from new orders is flowing to the bottom line with little increase in labor costs.

Falling wages are only one of the tailwinds pushing profits ahead. Just as ultra-low interest rates have helped homeowners cut their monthly mortgage payments, companies have gotten a big break on borrowing costs. Those savings have helped boost the bottom lines of the companies in the S&P 500 index by some 4.5 percent, according to financial analyst Stephen Moore.

Moore figures lower corporate taxes – which have fallen from about 30 percent of overall profits in the 1980s to around 20 percent today – have added another 1 percent to profits.
We’d add to the list the ongoing savings from lower natural gas and electricity costs thanks to a boom in U.S. energy production.

So how long can all this last?The only honest answer: No one knows. Including your investment adviser.

The recent recovery from a period of deep, financial malaise, though, is reminiscent of the 1980s emergence from the Great Inflation that destroyed thousands of businesses, trillions of dollars in financial assets and shredded consumer and investor confidence.

Then, for a variety of reasons, the economic storm subsided. In what seemed like a matter of months, it was Morning in America. The resulting stock market rally, which began in August 1982, was one of the longest on record.

To be sure, the over-caffeinated bull briefly passed out when a heart-stopping crash lopped 23 percent off stock prices in a single session on October 19, 1987. Four months later, though, the bull was back on his feet for another 12-year stampede that lifted stocks nearly seven-fold before the tech bubble burst in March 2000.

"You do not really understand something unless you can explain it to your grandmother" - Albert Einstein

"It is inaccurate to say I hate everything. I am strongly in favor of common sense, common honesty, and common decency. This makes me forever ineligible for public office" - H. L. Menken

"I swore never to be silent whenever and wherever human beings endure suffering and humiliation. We must always take sides. Neutrality helps the oppressor, never the victim. Silence encourages the tormentor, never the tormented" -Elie Wiesel

"Stay hungry, stay foolish" - Steve Jobs

"If you put the federal government in charge of the Sahara Desert , in five years ther'ed be a shortage of sand" - Milton Friedman

"The tragedy of modern man is not that he knows less and less about the meaning of his own life, but that it bothers him less and less" - Vaclav Havel